FD vs. RD: Which Scheme is Best for Growing Your Money?
Published on: January 1, 2026
When it comes to safe and predictable investments in India, two options immediately come to mind: Fixed Deposits (FD) and Recurring Deposits (RD). Both are offered by banks and post offices and provide guaranteed returns, making them ideal for risk-averse investors. However, they are designed for different financial habits and goals. This article provides a comprehensive comparison of over 800 words to help you choose the right option for your financial journey.
What is a Fixed Deposit (FD)?
A Fixed Deposit is a financial instrument where you invest a **lump-sum amount** of money for a pre-defined period at a fixed interest rate. The money is locked in for the tenure, which can range from 7 days to 10 years. It is the go-to option for people who have a sudden inflow of cash and want to protect it while earning a decent, predictable return.
- Investment Style: One-time, lump-sum investment.
- Best For: Individuals who have a significant amount of money they want to park safely, such as a retirement corpus, an annual bonus, inheritance, or proceeds from a property sale.
- Returns: The interest rate is fixed at the time of booking. The returns are guaranteed and not affected by market fluctuations. Interest is usually compounded quarterly, which means you earn interest on your interest every three months.
What is a Recurring Deposit (RD)?
A Recurring Deposit is a product that allows you to invest a **fixed amount of money every month** for a pre-defined period. It is designed to encourage a regular saving habit. The tenure for an RD typically ranges from 6 months to 10 years. It is the perfect first step into the world of disciplined saving.
- Investment Style: Regular, monthly installments, similar to a SIP but with guaranteed returns.
- Best For: Salaried individuals and those who want to save a small, fixed amount every month to build a corpus for a future goal, like a vacation, a down payment for a car, or an emergency fund.
- Returns: The interest rate is fixed for the entire tenure, similar to an FD. The interest is compounded quarterly on the growing balance, making it a powerful tool for disciplined savers.
Key Differences: FD vs. RD at a Glance
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Investment Frequency | One-time (Lump Sum) | Regularly (Monthly) |
| Who is it for? | Investors with a large sum of money. | Salaried individuals starting their savings journey. |
| Interest Rate | Generally slightly higher than RD rates for the same tenure. | Fixed, but often marginally lower than FD rates. |
| Flexibility | Less flexible as the entire amount is locked in. | More flexible as it involves smaller monthly commitments. |
| Taxation | Interest is taxable. TDS is deducted if interest exceeds ₹40,000 in a year. | Interest is taxable. TDS rules are the same as FDs. |
Special Benefits for Senior Citizens
A significant advantage of both FDs and RDs is the preferential treatment for senior citizens (individuals above 60 years of age). Banks in India almost universally offer a higher interest rate to seniors, typically an additional 0.50% per annum over the rate offered to regular citizens. This makes these instruments especially valuable for building a safe and secure retirement fund.
Tax Implications and TDS (Tax Deducted at Source)
This is a crucial point that many investors miss. The interest earned on both FDs and RDs is fully taxable and is added to your 'Income from Other Sources'. It is taxed as per your applicable income tax slab. If your total interest income from all deposits in a bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), the bank is required to deduct Tax at Source (TDS) at 10%. You can submit Form 15G or 15H if your total income is below the taxable limit to prevent this TDS deduction.
Final Verdict: Which to Choose?
The choice is simple and depends entirely on your cash flow and financial discipline:
- If you have a **lump-sum amount** and want to earn a slightly higher fixed return on it, an **FD** is the better choice.
- If you want to **build a saving habit** and invest a fixed amount systematically every month from your salary, an **RD** is the perfect tool for you.
Both are excellent, risk-free tools for capital preservation and steady growth. Often, the best strategy is to have both: an FD for your lump-sum savings and an RD for your monthly savings.